Skip to main navigation menu Skip to main content Skip to site footer

The shift of the foreign direct investments paradigm impacted by the Fourth Industrial Revolution

DOI:

https://doi.org/10.15678/IER.2023.0902.02

Abstract

Objective: The purpose of the article is to examine the impact of ground-breaking inventions collectively called the Fourth Industrial Revolution (4IR) or Industry 4.0 on foreign direct investments (FDIs). In particular, the impact of the inventions on offshoring and reshoring (backshoring, nearshoring, insourcing) was analysed in the context of other factors and their potential future course.

Research Design & Methods: The article is theoretical and empirical in nature and based on theoretical literature on the subject, secondary sources containing the results of empirical research, and desk research. Predictive analysis and logical reasoning methods played therefore a very important role, since the studied phenomena are in the process of evolution. The structure of the article consists of findings on the origins and the definitions of offshoring and reshoring and their theoretical foundations, an analysis of the motives, barriers and course of these processes follows, and the presentation of the research results and the final conclusions.

Findings: The implementation of 4IR inventions has the potential to fundamentally change the geography of FDIs and their importance in the world. It is likely to decrease the significance of labour costs as a factor of production location while increasing the role of human capital and technology. As a result, reshoring phenomena will intensify, and many global value chains will be liquidated or shortened. The ambivalent impact of 4IR on the geography of production will be probable, while the trend towards reshoring and spatial dispersion of the production of complete products in the long term may appear to be stronger.

Implications & Recommendations: To a significant degree, Industry 4.0 will probably change the criteria for the implementation of FDIs, their size, and the directions of capital flows. The consequences of this will vary depending on the type of industry and the production carried out within. In particular, the effects will differ when divided between highly developed and developing countries. If the former benefit from the change in business models and strengthen their competitive advantages, the latter may suffer significant losses related to the increase of unemployment and the collapse of their industrialization strategy based on the inflow of FDIs. Therefore, actions by governments and international organizations are necessary to prevent this ‘dark’ scenario from becoming a reality.

Contribution & Value Added: The article presents the theoretical foundations of offshoring and reshoring as well as the analysis and synthesis of their motives and barriers. Their course and recent determinants were characterized. The assessment of the impact of 4IR inventions on offshoring and reshoring and the identification of factors that will affect these two aspects of FDIs positively and negatively in the short, medium, and long term in the future have the greatest importance for the value of the study. Moreover, the study found that the reverse flow of FDIs implies the need to formulate their new paradigm. The former paradigm characterised them in a limited way as a unilateral flow of capital from the country of origin to the host country. The one proposed in the article takes into account also the return movement of capital as an immanent element of FDIs of increasing importance.

Keywords

Industrial Revolution 4.0, offshoring, reshoring, foreign direct investment

(PDF) Save

Author Biography

Jan Rymarczyk

Full professor, currently working at the WSB University in Poznań (Poland). His research interests include international business and international trade.


References

  1. Abeliansky, A.L., Martínez-Zarzoso, I., & Prettner, K. (2015). The Impact of 3D Printing on Trade and FDi. CEGE Discussion Paper, 262.
  2. Albertoni, F., Elia, S., Piscitello, L., & Fratocchi, L. (2015). Returning from Offshore: What we Know?. AiB Insights, 15(4), 9-12. https://doi.org/10.13140/RG.2.1.1683.7525
  3. Ancarani, A., Di Mauro, C., & Mascali, F. (2019). Backshoring Strategy and the Adoption of Industry 4.0: Evidence from Europe. Journal of World Business, 54(4), 360-371. https://doi.org/10.1016/j.jwb.2019.04.003
  4. Arik, M. (2013). Framing the Offshoring and Reshoring Debate; ·a Conceptual Framework. Journal of Global Business Management, 9(3), 73-83.
  5. Ashby, A. (2016) From Global to Local: Reshoring for Sustainability. Operations Management Research, 9(4), 75-88. https://doi.org/10.1007/s12063-016-0117-9
  6. BCI Global (2022, February 17). Reshoring Production Back to Europe and the US on the Rise, Particularly For Critical Parts and Final Production Process. Retrieved from https://bciglobal.com/en/reshoring-production-back-to-europe-and-the-us-is-on-the-rise-particularly-for-critical-parts-and-final-production-processes on December 10, 2022.
  7. Benstead A.V., Stevenson, M., & Hendry, L.C. (2017). Why and how do Firms Reshore? A Contingency– Based Conceptual Framework. Operations Management Research, 10(1), 85-103. https://doi.org/10.1007/s12063-017-0124-5
  8. Capgemini Consulting (2017). Digital Transformation of Supply Chain. Retrieved from https://www.capgemini.com/wp-content/uploads/2017/07/Digital_Transformation_of_Supply_Chains.pdf on May 16, 2021.
  9. Chang – Gyun, L. (2020, May 10). Pandemic Prompts Companies to Weight Reshoring. Korea JoongAng Daily. Retrieved from https://koreajoongangdaily.joins.com/2020/05/10/finance/company-korean-companies-korea-companies/20200510203500109.html on May 16, 2021.
  10. Chetan, T. (2022). 3D Printing. Basic Principles and Applications. Material Study Proceedings, 51(1), 842-849.
  11. Consultancy.eu(2022, March 2). European Companies Increasingly Moving to Reshore Asia. Retrieved from https://www.consultancy.eu/news/7430/european-companies-increasingly-moving-to-reshore-asia-production on May 16, 2021.
  12. Dachs, B., Kinkel. S., & Jäger, A. (2017) Bringing it all Back Home? Backshoring of Manufacturing Activities and the Adoption of Industry 4.0 Technologies. MPRA Paper, No. 83167.
  13. De Beule, F., & Nauwelaerts, Y. (2018). The Impact of Industry 4.0 on FDi, MNE, GVC, and Developing Countries: A Conceputal Note. Retrieved from https://fgks.in/images/pdf/conf/2018/1_Filip.pdf on May 18, 2020.
  14. Dilberoglu, U.M., Gharehpapagh, B., Yaman, U., & Dolen, M. (2017). The role of additive manufacturing in the era of industry 4.0. Procedia manufacturing, 11, 545-554. https://doi.org/10.1016/j.promfg.2017.07.148
  15. Di Mauro, C., Fratocchi, L., Orzes, G., & Sartor, M. (2018). Offshoring and backshoring: A multiple case study analysis. Journal of Purchasing and Supply Management, 24(2), 108-134. https://doi.org/10.1016/j.pursup.2017.07.003
  16. Di Stefano, C., & Fratocchi, L. (2019). Manufacturing back-shoring and sustainability: a literature review. Sinergie Italian Journal of Management, 37(2), 119-143. https://doi.org/10.7433/s109.2019.07
  17. Dunning, J.H., & Lundan, S.M. (2008). Multinational enterprises and the global economy. Edward Elgar Publishing.
  18. Elia, S., Fratocchi, L., Barbieri, P., Boffellid, A., & Kalchschmidt, M. (2021). Post-pandemic Reconfiguration from Global to Domestic and Regional Value Chains: the Role of Industrial Policies. Transnational Corporations, 28(2), 67-94.
  19. Ellram, L.M. (2013). Offshoring and Reshoring; An Update on the Manufacturing Location Decision. Journal of Supply Chain Management, 49(2), 14-22. https://doi.org/10.1111/jscm.12019
  20. Éltető, A. (2019). Effects of Industry 4.0 on reshoring investments-Hungarian experiences (No. 251). Institute of World Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  21. Enderwick, P., & Buckley, P.J. (2020). Rising regionalization: will the post-COVID-19 world see a retreat from globalization?. Transnational Corporations Journal, 27(2), 99-112.
  22. Flach, L., Aichele, R., & Braml, M. (2020). Status quo und Zukunft globaler Lieferketten. ifo Schnelldienst, 73(5), 16-22.
  23. Foerstl, K., Kirchoff, J.F., & Bals, L. (2016). Reshoring and insourcing: drivers and future research directions. International Journal of Physical Distribution & Logistics Management, 46(5), 492-515. https://doi.org/10.1108/IJPDLM-02-2015-0045
  24. Fratocchi, L., & Di Stefano, C. (2020). Industry 4.0 technologies and manufacturing back-shoring: a European perspective. Acta IMEKO, 9(4), 13-20.
  25. Fratocchi, L., Ancarani, A., Barbieri, P., Di Mauro, C., Nassimbeni, G., Sartor, M., … & Zanoni, A. (2016). Motivations of manufacturing reshoring: an interpretative framework. International Journal of Physical Distribution & Logistics Management, 46(2), 98-127. https://doi.org/10.1108/IJPDLM-06-2014-0131
  26. Gray, J.V., Skowronski, K., Esenduran, G., & Johnny Rungtusanatham, M. (2013). The reshoring phenomenon: what supply chain academics ought to know and should do. Journal of Supply Chain Management, 49(2), 27-33. https://doi.org/10.1111/jscm.12012
  27. Gronau, N. (2015). Der Einfluss von Cyber-Physical Systems auf die Gestaltung von Produktionssystemen. Industrie Management, 31(3), 16-20.
  28. Habib, M.K. (2020). Advanced Robotics and Intelligent Automation in Manufacturing. IGI Global.
  29. Javorcik, B. (2020). Global Supply Chains Will not be the same in the Post-Covid-19 World. In R.E. Baldwin, S.I. Evenett (Eds.), Covid-19 and Trade Policy: Why Turning Inward Wan ‘t Work (pp. 111-116). CEPR Press.
  30. Johansson, M., & Olhager, J. (2018). Comparing offshoring and backshoring: The role of manufacturing site location factors and their impact on post-relocation performance. International Journal of Production Economics, 205, 37-46. https://doi.org/10.1016/j.ijpe.2018.08.027
  31. Kalotay, K., & Sass, M. (2021). Foreign direct investment in the storm of the COVID-19 pandemic and the example of Visegrad countries. Acta Oeconomica, 71(S1), 73-92. https://doi.org/10.1556/032.2021.00030
  32. Kamp, B., & Gibaja, J.J. (2021). Adoption of digital technologies and backshoring decisions: is there a link?. Operations Management Research, 14, 380-402.
  33. Koronawirus pokazał, że nadmierne uzależnienie od Chińskich fabryk szkodzi Europie [Coronavirus demonstrated that an Excessive Dependence on Chinese Factories was Harmful to Europe] (2020, April 26). Onet Politico. Retrieved from https://wiadomości.onet.pl/politicio/koronawirus on May 8, 2020.
  34. Korzynski, P., Kozminski, A.K., & Baczynska, A.K. (2023). How does technology help leaders over-come constraints? Analysis of ChatGPT, virtual reality, human capital management systems, robotic process automation, and social media. International Entrepreneurship Review, 9(2).
  35. Korzynski, P., Mazurek, G., Altmann, A., Ejdys, J., Kazlauskaite, R., Paliszkiewicz, J., Wach, K., & Ziemba, E. (2023). Generative artificial intelligence as a new context for management theories: analysis of ChatGPT. Central European Management Journal, 31(1). https://doi.org/10.1108/CEMJ-02-2023-0091
  36. Kramer, M. (2017). Reshoring Challenges after the Reshoring Decision an Exploratory Study. University Tilbury.
  37. Laplume, A.O., Petersen, B., & Pearce, J.M. (2016). Global value chains from a 3D printing perspective. Journal of International Business Studies, 47, 595-609.
  38. Le, P.N. (2021). Literature review on the impacts of foreign direct investment in the emerging economy: The Case of Vietnam. Open Journal of Business and Management, 9(2), 851-857. https://doi.org/10.4236/ojbm.2021.92044
  39. Letsou, E., & Pantelidis, P. (2020). Foreign Direct Investments: A Literature Review. MPRA Paper 98429. Retrieved from https:mpra.ub.uni-muenches.de on November 7, 2020.
  40. Młody, M. (2016). Reindustrialization of the European Union Member States in the Context of Reshoring. International Business and Global Economy, 35(1), 455-467.
  41. Nassimbeni, G., Sartor, M., Wan, L., Ancarani, A., Di Mauro, C., Mascali, F., ... & Orzes, G. (2019). Reshoring in Europe: Overview 2015-2018. Eurofaund.
  42. Otieno, W.O., & Aduda, J. (2022). Foreign Direct Investments and Economic Growth: A Critical Literature Review. International Journal of Finance, 7(3), 34-60.
  43. Ouelletee, M. (2022, August 29). Reshoring is Soaring in 2022 – 350000 New Jobs Predicted. Engineering.com. Retrieved from https://www.engineering.com/story/reshoring-is-soaring-in-2022350000-new-jobs-predicted on October 3, 2022.
  44. Paul, J., & Feliciano-Cestero, M.M. (2021). Five decades of research on foreign direct investment by MNEs: An overview and research agenda. Journal of Business Research, 124, 800-812. https://doi.org/10.1016/j.jbusres.2020.04.017
  45. Pla-Barber, J., Villar, C., & Narula, R. (2021). Governance of global value chains after the Covid-19 pandemic: A new wave of regionalization?. BRQ Business Research Quarterly, 24(3), 204-213. https://doi.org/10.1177/23409444211020761
  46. Popovic, A., & Milijić, A. (2020). Impact of Reshoring in Industry 4.0 on Economic Development in the Wave of COVID-19 Crisis. 51-st International Scientific Conference „Digital Economy, Chances, Risks, Sustainable Development”, Niš, October 2020.
  47. Rao, P.K. (2003). The Economics of Transaction Costs. Theory, Methods and Applications. Palgrave Macmillan.
  48. Raza, W., Grumiller, J., Grohs, H., Essletzbichler, J., & Pintar, N. (2021). Post Covid-19 value chains: Options for reshoring production back to Europe in a globalised economy. European Training Foundation. Retrieved from https://policycommons.net/artifacts/3165233/post-covid-19-value-chains/3963615/ on October 3, 2022.
  49. Rayna, T., & Striukowa, L. (2015). From Rapid Prototyping to Home Fabrication: How 3D Printing is Changing Business Model Innovation. Technological Forecasting and Social Change, 102, 214-224.
  50. Riker, D.A., & Wickramarachi, H. (2020). A review of economic literature on foreign direct investment. US International Trade Commission.
  51. Rymarczyk, J. (2017). Finanse biznesu międzynarodowego [Finance of International Business]. WSB.
  52. Rymarczyk, J. (2020). Technologies, Opportunities and Challenges of the Industrial Revolution 4.0: Theoretical Considerations. Entrepreneurial Business and Economics Review, 8(1), 185-198. https://doi.org/10.15678/EBER.2020.080110
  53. Rymarczyk, J. (2021). The impact of industrial revolution 4.0 on international trade. Entrepreneurial Business and Economics Review, 9(1), 105-117. https://doi.org/10.15678/EBER.2021.090107
  54. Rymarczyk, J. (2022). The Change in the Traditional Paradigm of Production under Influence of Industrial Revolution 4.0. Business, 2(2), 118-200. https://doi.org/10.3390/businesses2020013
  55. Schrauf, S., & Bettram, P. (2016). Industry 4.0. How Digitalization Makes the Supply Chain More Efficient, Agile and Customer – Focused. PWC Strategy & Germany.
  56. Stone, J.M. (2022, August 23). USA: Reshoring as a Trending Choice for Manufactures. L&E Global. Retrieved https://leglobal.law/2022/08/23/usa-reshoring-as-a-trending-choice-for-manufacturers/ on September 16, 2022.
  57. Strange, R., & Zucchella, A. (2017). Industry 4.0, Global Value Chains and International Business. Multinational Business Review, 25(3), 174-184. https://doi.org/10.1108/MBR-05-2017-0028
  58. Tate, W., & Bals, L. (2018). Outsourcing / Offshoring Insights: Going beyond Reshoring to Rightshoring. International Journal of Physical Distribution & Logistics Management, 47(2/3), 106-113.
  59. Tilley, J. (2017, September 7). Automatization, Robotics and the Factory on the Future. MccKinsey & Company. Retrieved from https://www.mckinsey.com/capabilities/operations/our-insights/automation-robotics-and-the-factory-of-the-future on December 10, 2022.
  60. Toorajipour, R., Sohrabpour, V., Nazarpour, A., Oghazi, P., & Fischl, M. (2021). Artificial intelligence in supply chain management: A systematic literature review. Journal of Business Research, 122, 502-517. https://doi.org/10.1016/j.jbusres.2020.09.009
  61. Trąpczyński, P. (2013). Determinants of Foreign Direct Investment Performance? A Critical Literature Review. Oeconomia Copernicana, 4(2), 117-132.
  62. UNCTAD (2022). World Investment Report 2022. International tax reforms and sustainable investment. UN.
  63. Wach, K., Duong, C.D., Ejdys, J., Kazlauskaitė, R., Korzynski, P., Mazurek, G., Paliszkiewicz, J., & Ziemba, E. (2023). The dark side of generative artificial intelligence: A critical analysis of controversies and risks of ChatGPT. Entrepreneurial Business and Economics Review, 11(2).
  64. Wan, X. (2010). A Literature Review on the Relationship between Foreign Direct Investment and Economic Growth. International Business Research, 3(1), 52-56.
  65. WEF (2017). Impact of the Fourth Industrial Revolution on Supply Chain. World Economic Forum.
  66. WEF(2020, June 22). The Ongoing Impact of COVID-19 on Global Supply Chain. Retrieved from https://www.weforum.org/agenda/2020/06/ongoing-impact-covid-19-global-supply-chains/ on December 12, 2022.
  67. Wiesmann, B., Snoei, J.R., Hilletofth, P., & Eriksson, D. (2017). Drivers and barriers to reshoring: a literature review on offshoring in reverse. European Business Review, 29(1), 15-42. https://doi.org/10.1108/EBR-03-2016-0050
  68. World Bank (2020). Foreign Direct Investment and Productivity. A Literature Review on the Effects of FDi on Local Firm Productivity. World Bank Group.
  69. Manufacturing Sites are Scaling Innovations on learning Network of World Economic Forum (n.d). The Smart City Journal. Retrieved from https://www.thesmartcityjournal.com/en/companies/90-manufacturing-sites-are-scaling-innovations-on-learning-network-of-world-economic-forum on May 7, 2022.

Downloads

Download data is not yet available.

Similar Articles

11-20 of 185

You may also start an advanced similarity search for this article.